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USD/INR: Indian Rupee Up on CPI, But Gold Threatens Trade Balance

The Indian Rupee (INR) saw slight gains yesterday against the US Dollaras incoming CPI data showed that prices rose at an 8.1%YoY pace (vs.8.3% estimated by economists) while Industrial Production YoY for January came in at 0.1% (vs. a -0.9% decline surveyed).This news sent the USD/INR lower by 0.47% at the print (Rupee strength). Although better than expected, it is evident that domestic prospects have slightly slowed on the back of RBI rate hikes, geopolitical tensions globally and softening data around the world; on Tuesday we received Indian export data that indicated a 3.7% drop YoY as of February.

3/12/14 Data

ACTUAL

SURVEY

Industrial Production YoY (JAN)

0.1%

-0.9%

CPI YoY (FEB)

8.1%

8.3%

Nevertheless, flat and slightly better than expected data such as this has been viewed as healthy for the Indian Rupee and long term economic prospects of the nation. As we have stated before, with the Reserve Bank of India willing to accept slower growth near term for healthier price growth and a stable economy in the long run, market participants are likely to continue to hold the Rupee under a set of stable conditions. Those conditions would include incoming economic data that continues to remain relatively well founded and CPI data that indicates a slow, but steady decline in YoY price growth.

A disruption to this trend near term remains the upcoming election cycle that will continue until mid-May. The USD/INR pair has proved sensitive as of late to regular updates on poll numbers as investors have found a liking to the opposition party led by Narendra Modi.

In addition, risks moving forward include the recent run-up in Gold prices as this threatens the Indian government’s rumored plans to slightly lift restrictions in regards to gold imports this spring. If we continue to see this move higher in gold, trade balance data may come back into light as a serious mover of the Rupee. Aside from Wholesale prices YoY (FEB) on Friday the 14th, the next major event risk remains the Reserve Bank of India Rate Decision on April 1st.

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